Communication no. 9 of 11^th April 2019

Compliance with reporting obligations towards Italian authorities by settlement internalisers pursuant to Regulation (EU) 909/2014 (CSDR)

Regulation (EU) 909/2014 (hereinafter “CSDR”) is the first EU regulation which regulates the activities of central securities depositories (hereinafter “CSD”). A legal person, in order to qualify as CSD pursuant to CSDR, has, inter alia, to operate a securities settlement system (hereinafter “settlement system”), which allows the transfer of financial instruments (e.g. shares, sovereign bonds, corporate bonds, ETF, covered warrant and certificate), which are initially recorded by the CSD operating the system or by another CSD, between accounts of the system’s participants.

In some cases an entity can settle a securities transaction outside a settlement system operated by a CSD, not forwarding the transaction to a central counterparty or to another intermediary for its execution. This entity, which settles internally the transaction (hereinafter “internalised transactions” or “internalised settlements”) is defined as “settlement internaliser”.

Any entity which handles securities transfer orders, for its own account or on behalf of clients, can fall within the definition of settlement internaliser, irrespective of its participation to a settlement system. Typically, a settlement internaliser is a bank or an investment firm.

In order to monitor the transfers of financial instruments which are settled outside of a settlement system operated by a CSD, Article 9 of CSDR introduces the obligation, upon settlement internalisers, to report quarterly to the national competent authority some aggregate data on  internalised transactions.

There is no a minimal threshold. Thus, even one internalised transaction during a quarter triggers the reporting obligation.

The first data to be reported to the national competent authority pursuant to Article 9 of CSDR have to be transmitted from 1^st to 12^th of July, 2019 with regard to the internalised transactions settled during the quarter 1^st April – 30^th June 2019.

The matter is regulated, in addition to the abovementioned Article 9 of CSDR, by Commission delegated regulation 2017/391 and by Commission implementing regulation 2017/393. Moreover, ESMA has published, on 28^th March 2018, a set of Guidelines on this topic.

Consob intends to comply with the abovementioned Guidelines regarding settlement internalisers.

Data to be reported, which are detailed in the abovementioned Commission delegated regulation 2017/391, have to be sent in the format provided for in Commission implementing regulation 2017/393. Moreover, data must compulsorily be organised in XML file which must comply with the XSD schema provided for in the abovementioned ESMA Guidelines and approved by ISO on 10^th October 2018.  Data not complying with the requirements will be rejected.

It is worth highlighting that, pursuant to Article 2, paragraph 3, of Commission delegated regulation 2017/391, in case of free of payment securities transfer (hereinafter “FOP”), settlement internalisers are required to value such transfers by applying the price available on the main EU trading venue for the concerned securities. Where the securities are not traded in an EU trading venue, the market value of FOP transfers must be calculated according to a pre-determined methodology, approved by the competent authority. Where a market value is not available, the nominal value of the financial instruments is to be used.

Pursuant to Article 79-duodecies, paragraph 5, of Italian Consolidated Law on Finance, Consob e Banca d’Italia have been designed as the Italian national competent authorities, in charge of receiving data from settlement internalisers.

In order to minimize the burden on settlements internalisers, the two authorities have decided that settlements internalisers send data on internalised settlements to Consob only. Consob will in turn forward the data received to Banca d’Italia and, pursuant to CSDR, to ESMA.

It is worth highlighting that only settlements internalisers which are established in Italy and Italian branches of settlements internalisers which are established outside the EU (hereinafter “Italian Settlement Internalisers”) are required to report data to Italian authorities. On the contrary, Italian branches of settlement internalisers which are established in other EU countries have to report their data to the national competent authority of the Member State where the settlement internaliser is established.

In this respect, Consob is developing an IT reporting system based on the FTP protocol. Each Italian Settlement Internaliser shall, therefore, establish an FTP link with Consob in order to send data on internalised transactions.

As the establishing of an FTP link and the following test activities can take time, also depending on the number of access requests, all Italian Settlement Internalisers are invited to contact Consob as soon as possible, and, in any case, well in advance in respect to the deadline of July 2019.

Consequently, all Italian Settlement Internalisers are required to fill in the attached pdf form and send it, by 17^th May 2019, to Consob’s Post-Trading department. The form has to be sent by certified email to dme@pec.consob.it as well as by common email to csdr@consob.it.

It is possible to use the form to indicate the methodology adopted to calculate the market value of FOP transfers for financial instruments not traded in an EU trading venue.

It is also possible to use the form to communicate the intention to delegate to a third party the technical reporting activity towards Consob. If this is the case, contact details of the delegated entity must be provided in the form. It is worth highlighting that, in any case, the delegating settlement internaliser remains legally liable for complying with the reporting obligation.

A dedicated section where additional details on Consob reporting system as well as on settlement internalisers’ obligations are published is available on Consob website (http://www.consob.it/web/area-pubblica/internalizzatori-di-regolamento, Italian version only).

For any clarification please contact Consob’s Post-Trading department at csdr@consob.it.

THE CHAIRMAN
Paolo Savona